GILLA INC.
|
(Exact name of registrant as specified in its charter)
|
Nevada
|
88-0335710
|
|
(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification Number)
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112 North Curry Street, Carson City, NV
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89703
|
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(Address of Principal Executive Offices)
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(Zip Code)
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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||||
o
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Yes
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þ
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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||||
o
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Yes
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þ
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No
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Page
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|||||
Part I
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|||||
ITEM 1
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Business
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4
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|||
ITEM 1A
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Risk Factors
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11
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|||
ITEM 1B
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Unresolved Staff Comments
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20
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|||
ITEM 2
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Properties
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20
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|||
ITEM 3.
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Legal Proceedings
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20
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|||
ITEM 4.
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Mine Safety Disclosures
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20
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|||
Part II
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|||||
ITEM 5.
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Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
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21
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|||
ITEM 6
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Selected Financial Data
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22
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|||
ITEM 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
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22
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|||
ITEM 7A
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Quantitative and Qualitative Disclosures About Market Risk
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34
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|||
ITEM 8.
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Financial Statements and Supplementary Data
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F-1
|
|||
ITEM 9.
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Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
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35
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|||
ITEM 9A.
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Controls and Procedures
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35
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|||
ITEM 9B.
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Other Items
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36
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|||
Part III
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|||||
ITEM 10.
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Directors, Executive Officers and Corporate Governance
|
37
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|||
ITEM 11.
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Executive Compensation
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40
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|||
ITEM 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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42
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|||
ITEM 13.
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Certain Relationships and Related Transactions, and Director Independence
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43
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|||
ITEM 14.
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Principal Accountings Fee and Services
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45
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|||
ITEM 15.
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Exhibits and Financial Statement Schedules
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45
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Signatures
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47 |
●
|
Cartomizer - The cartomizer is a device consisting of an atomizer and cartridge in one piece that connects to the battery. It contains a small heating coil consisting of a simple filament and wicking material that vaporizes liquid, and is surrounded by a liquid-soaked poly-foam. The cartomizer is disposed and replaced after the liquid is exhausted. Users have compared one cartomizer to the equivalent of approximately 1.5 packs of cigarettes.
|
●
|
Battery - The battery is a lithium-ion rechargeable battery activated by an electronic airflow sensor that is triggered by drawing breath through the E-cigarette device. The Company’s E-cigarettes are available in a range of sizes that may appeal to the user.
|
●
|
Liquid - A solution of propylene glycol (an organic compound that facilitates the vapor effect that can be found in many pharmaceutical and cosmetic products such as moisturizers), vegetable glycerin, flavors and a variable percentage of nicotine.
|
●
|
Clearomizer - The clearomizer is the reusable tank that connects to the battery in which the e-liquid solution is deposited. Inside the clearomizer is a wicking material that one end absorbs the liquid solution and the other end is wrapped around a small heating coil outside of the clearomizer. Users have compared a filled clearomizer to the equivalent of approximately 3 packs of cigarettes.
|
●
|
Battery - The battery is a lithium-ion rechargeable battery, available different voltage capacities: 650mAh, 900mAh and 1100mAh. The Vaporizer is activated by the user pressing and holding down a LED button located on the exterior of the battery which activates the heating coil.
|
●
|
E-Liquid - A solution of propylene glycol (an organic compound that facilitates the vapor effect that can be found in many pharmaceutical and cosmetic products such as moisturizers), vegetable glycerin, flavors and a variable percentage of nicotine.
|
●
|
the levying of substantial and increasing tax and duty charges;
|
●
|
restrictions or bans on advertising, marketing and sponsorship;
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●
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the display of larger health warnings, graphic health warnings and other labeling requirements;
|
●
|
restrictions on packaging design, including the use of colors and generic packaging;
|
●
|
restrictions or bans on the display of tobacco product packaging at the point of sale, and restrictions or bans on cigarette vending machines;
|
●
|
requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents levels;
|
●
|
requirements regarding testing, disclosure and use of tobacco product ingredients;
|
●
|
increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;
|
●
|
elimination of duty free allowances for travelers; and
|
●
|
encouraging litigation against tobacco companies.
|
●
|
liabilities that substantially exceed our product liability insurance, which we would then be required to pay from other sources, if available;
|
●
|
an increase of our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, or at all;
|
●
|
damage to our reputation and the reputation of our products, resulting in lower sales;
|
●
|
regulatory investigations that could require costly recalls or product modifications;
|
●
|
litigation costs; and
|
●
|
the diversion of management’s attention from managing our business.
|
●
|
established a Tobacco Products Scientific Advisory Committee to, among other things, evaluate the issues surrounding the use of menthol as a flavoring or ingredient in cigarettes and issue a nonbinding recommendation to the FDA regarding menthol by March 23, 2011;
|
●
|
grants the FDA the regulatory authority to consider and impose broad additional restrictions through a rule making process, including a ban on the use of menthol in cigarettes;
|
●
|
requires larger and more severe health warnings, including graphic images, on packs, cartons and advertising;
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●
|
bans the use of descriptors on tobacco products, such as “low tar” and “light”;
|
●
|
requires the disclosure of ingredients, additives and constituents to consumers;
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●
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requires pre-market approval by the FDA of all new products, including substantially equivalent products;
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●
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requires pre-market approval by the FDA for claims made with respect to reduced risk or reduced exposure products;
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●
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allows the FDA to require the reduction of nicotine or any other compound in cigarettes;
|
●
|
allows the FDA to mandate the use of reduced risk technologies in conventional cigarettes;
|
●
|
allows the FDA to place more severe restrictions on the advertising, marketing and sales of cigarettes; and
|
●
|
permits possible inconsistent state and local regulation of the advertising or promotion of cigarettes by providing an exception to certain federal preemption of such regulation.
|
●
|
competition;
|
●
|
ability to anticipate and adapt to a competitive market;
|
●
|
ability to effectively manage expanding operations; amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and
|
●
|
dependence upon key personnel to market and sell our services and the loss of one of our key managers may adversely affect the marketing of our services.
|
2012
|
HIGH
|
LOW
|
||||||
First Quarter
|
$
|
0.12
|
$
|
0.0036
|
||||
Second Quarter
|
$
|
0.006
|
$
|
0.005
|
||||
Third Quarter
|
$
|
0.0095
|
$
|
0.006
|
||||
Fourth Quarter
|
$
|
0.05
|
$
|
0.01
|
2013
|
HIGH
|
LOW
|
||||||
First Quarter
|
$
|
0.13
|
$
|
0.01
|
||||
Second Quarter
|
$
|
0.10
|
$
|
0.04
|
||||
Third Quarter
|
$
|
0.06
|
$
|
0.03
|
||||
Fourth Quarter
|
$
|
0.24
|
$
|
0.03
|
Years ended December 31,
|
||||||||
2013
|
2012
|
|||||||
Revenues
|
$
|
76,977
|
$
|
-
|
||||
Net Loss
|
$
|
(1,502,922
|
)
|
$
|
(1,063,803
|
)
|
||
Earnings (Loss) Per Share
|
$
|
(0.024
|
)
|
$
|
(0.037
|
)
|
||
Total assets
|
$
|
528,744
|
$
|
15,677
|
||||
Total liabilities
|
$
|
1,753,394
|
$
|
818,117
|
December 31,
2013
|
December 31,
2012
|
|||||||
Period-end CAD: USD exchange rate
|
$
|
0.9402
|
$
|
1.0051
|
||||
Average Period CAD: USD exchange rate
|
$
|
0.9710
|
$
|
1.0008
|
●
Level 1
|
-
|
Unadjusted quoted prices in active markets for identical assets or liabilities;
|
●
Level 2
|
-
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
●
Level 3
|
-
|
Inputs that are not based on observable market data.
|
●
Furniture and equipment
|
3 years
|
●
Computer hardware
|
3 years
|
|
Inventory
|
|
Income Taxes
|
|
Impairment of Long Lived Assets
|
|
Website Development Costs
|
|
Use of Estimates
|
|
Advertising Costs
|
|
Convertible Debt Instruments
|
|
Warrants
|
|
Stock Issued In Exchange For Services
|
|
Reclassification
|
|
Recently Adopted Accounting Pronouncements
|
●
|
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
|
●
|
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
|
|
Recent Accounting Pronouncements
|
Assets acquired:
|
$
|
4
|
||
Liabilities assumed:
|
(286,360
|
)
|
||
Common stock retained:
|
(5,895
|
)
|
||
Foreign exchange difference:
|
25
|
|||
Net loss:
|
$
|
(292,226
|
)
|
a)
|
Operating Lease - Vehicle
|
December 31, 2014
|
$
|
3,995
|
||
$
|
3,955
|
b)
|
Rental Lease
-
Premises
|
December 31, 2014
|
$
|
13,886
|
||
$
|
13,886
|
REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
Name
|
Age
|
Position
|
||
Ernest “Ernie” Eves
|
67 |
Chairman of the Board of Directors
|
||
Henry J. Kloepper
|
64 |
Lead Independent Director and Chairman of the Audit, Compensation and Governance Committees
|
||
J. Graham Simmonds
|
40 |
Director and Chief Executive Officer
|
||
Daniel Yuranyi
|
57 |
Director, President and Chief Operating Officer
|
||
Stanley D. Robinson
|
63 |
Director
|
||
Ashish Kapoor
|
36 |
Chief Financial Officer
|
||
Carrie J. Weiler
|
54 |
Corporate Secretary
|
Name
|
Number of Late Reports
|
Transactions Not
Timely Reported
|
Known Failures to File a
Required Form
|
|||||||||
Daniel Yuranyi
|
2 | 2 | 2 | |||||||||
J. Graham Simmond
|
4 | 4 | 4 | |||||||||
Ashish Kapoor
|
3 | 3 | 3 | |||||||||
Ernest “Ernie” Eves
|
2 | 2 | 2 | |||||||||
Henry J. Kloepper
|
2 | 2 | 2 | |||||||||
Carrie J. Weiler
|
2 | 2 | 2 |
Name/Title
|
Year
|
Salary
$
(1)
|
Bonus
$
(1)
|
Other Annual Compensation
$
(1)
|
Restricted Option Stocks/ Payouts Awarded
#
|
|||||||||||||
Ernest “Ernie” Eves (2) | 2013 | - | - | - | - | |||||||||||||
Chairman of the Board of Directors | 2012 | - | - | - | - | |||||||||||||
Henry J. Kloepper (2) |
2013
|
- | - | - | - | |||||||||||||
Lead Independent Director and Chairman | 2012 | - | - | - | - | |||||||||||||
of the Audit, Compensation and | ||||||||||||||||||
Governance Committees | ||||||||||||||||||
J. Graham Simmonds (2) (3) |
2013
|
$ | 120,000 | - | - | - | ||||||||||||
Director and Chief Executive Officer |
2012
|
$ | 80,000 | - | - | - | ||||||||||||
Daniel Yuranyi (2) |
2013
|
$ | 120,000 | - | - | - | ||||||||||||
Director, President and Chief Operating Officer |
2012
|
$ | 80,000 | - | - | - | ||||||||||||
Stanley D. Robinson (2) |
2013
|
- | - | - | - | |||||||||||||
Director | 2012 | - | - | - | - | |||||||||||||
Ashish Kapoor (2) (3) |
2013
|
$ | 120,000 | - | - | - | ||||||||||||
Chief Financial Officer | 2012 | $ | 40,000 | - | - | - | ||||||||||||
Carrie J. Weiler (2) |
2013
|
$ | 30,000 | - | - | - | ||||||||||||
Corporate Secretary |
2012
|
$ | 12,500 | - | - | - | ||||||||||||
Georges Benarroch (4) |
2013
|
- | - | - | - | |||||||||||||
Prior Director, CEO and President |
2012
|
- | - | - | - | |||||||||||||
Daniel Barrette (4) |
2013
|
- | - | - | - | |||||||||||||
Prior Director and COO |
2012
|
- | - | - | - | |||||||||||||
Linda Kent (4) |
2013
|
- | - | - | - | |||||||||||||
Prior Director, Corporate Secretary and Treasurer | 2012 | - | - | - | - |
(1)
|
All figures in the table above are denominated in Canadian Dollars. The Company’s Canadian subsidiary maintains its books and records in Canadian Dollars. The Company’s financial statements are converted to U.S. Dollars (the reporting currency) for consolidation purposes. For the year ended December 31, 2013, the exchange rate used to translate amounts in Canadian Dollars to U.S. Dollars was $0.9710 (December 31, 2012: $1.0008).
|
(2)
|
As of the date of this Report, other than the SimKap Agreement (as defined below), the Company has not entered into employment agreements with any of the Company’s officers and directors. However, the Company and each of Messrs. Yuranyi and, Simmonds and Mr. Kapoor has agreed that, as remuneration for their respective services, each of Messrs. Yuranyi and, Simmonds and Mr. Kapoor would each be paid $10,000 Canadian Dollars per month, and that such compensation would be accrued monthly and payable at such times as determined by the Company. The Company and Carrie J. Weiler have agreed that the Company shall accrue consideration at a rate of $2,500 Canadian Dollars per month, such consideration payable at such times as determined by the Company.
|
(3)
|
Commencing on April 1, 2013, compensation with respect to the services of Mr. Simmonds and Mr. Kapoor in their respective roles with the Company were paid by the Company to SimKap in accordance with the terms of the SimKap Agreement in lieu of payments to Mr. Simmonds and Mr. Kapoor.
|
(4)
|
In conjunction with the Merger, Georges Bennarroch (former President and Director), Daniel Barrette (former Chief Operating Officer and Director) and Linda Kent (former Corporate Secretary and Director) each tendered their resignations as Directors and Officers of Gilla, effective as of November 15, 2012.
|
Name of Beneficial Owner
|
Number of Common Shares
|
Percentage Owned
|
||||||
Daniel Yuranyi
|
7,500,000 | 10.98 | % | |||||
J. Graham Simmonds
|
4,033,571 | (5) | 5.90 | % | ||||
Ashish Kapoor
|
3,300,000 | (6) | 4.83 | % | ||||
Ernest “Ernie” Eves
|
1,000,000 | 1.46 | % | |||||
Carrie J. Weiler
|
200,000 | 0.29 | % | |||||
Henry J. Kloepper
|
100,000 | (7) | 0.15 | % | ||||
Stanley D. Robinson
|
60,000 | 0.09 | % | |||||
Directors and Executive
Officers as a group
|
16,193,571 | 23.70 | % |
(1)
|
This table is based upon 68,318,007 Common Shares issued and outstanding as of April 7, 2014.
|
(2)
|
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to the Common Shares. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such options or warrants, but are not deemed outstanding for computing the percentage of any other person.
|
(3)
|
To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our Common Stock beneficially owned by such person.
|
(4)
|
The mailing address of each of the individuals and entities listed above is c/o Gilla Inc., 112 North Curry Street, Carson City, Nevada 89703.
|
(5)
|
Includes 3,508,571 Common Shares owned by GraySim Family Trust and 450,000 Common Shares owned by The Woodham Group Inc.
|
(6)
|
Includes 3,000,000 Common Shares owned by 2364201 Ontario Corp.
|
(7)
|
Includes 100,000 Common Shares owned by Nancy Kloepper.
|
a)
|
On November 15, 2012, the Company entered into a Convertible Revolving Credit Note (the “Note”), with a related party, for $225,000 due on or before February 15, 2014, bearing interest rate at a rate of 6% per annum. Interest is accrued and added to the principal amount of the Note at the maturity date. The Note may be repaid, in whole or in part, without penalty with five days prior written notice. At any time subsequent to 30 days after the maturity date, the outstanding principal amount and any accrued and unpaid interest is convertible in to common stock at a conversion price of the lower of $0.01 per share or the average of the bid prices for the common stock of the Company for the 15 trading days prior to the notice of conversion.
|
b)
|
On September 30, 2013, the Company entered into a Secured Promissory Note (the “Secured Note”) with a related party for $200,000 due on or before January 1, 2015, bearing interest at a rate of 1.5% per month. Interest is accrued and added to the principal amount of the Secured Note at the maturity date. The related party will also be paid an establishment fee of 2.0%. The Secured Note is secured by a general security agreement.
|
a)
|
The Company’s current and former officers and shareholders have advanced funds on an unsecured, non-interest bearing basis to the Company for travel related and working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances.
|
December 31,
2013
|
December 31,
2012
|
|||||||
Advances by Officers of the Company, two of which are also Directors
|
$ | 226,430 | $ | 126,317 | ||||
Advances by a corporation owned by two Officers, one of which is also a Director
|
255,215 | - | ||||||
Advances by persons related to an Officer and Director of the Company
|
55,907 | 18,231 | ||||||
Advances by an Officer and Director of the Company, bears interest at 1.5% per month
|
214,265 | 95,024 | ||||||
Advances by a corporation related by virtue of common Officers and Directors
|
15,609 | - | ||||||
$ | 767,426 | $ | 239,572 |
b)
|
Interest accrued to related parties during the years ended December 31, 2013 and 2012 is as follows:
|
December 31,
2013
|
December 31,
2012
|
|||||||
Interest accrued on advances by an Officer and Director of the Company
|
$ | 57,461 | $ | - | ||||
Interest accrued on related party Secured Note (note 9)
|
6,000 | - | ||||||
Interest accrued on related party convertible revolving credit note (note 9)
|
15,377 | 1,479 | ||||||
$ | 78,838 | $ | 1,479 |
c)
|
Transactions with related parties during the year ended December 31, 2013 and 2012 were as follows:
|
December 31,
2013
|
December 31,
2012
|
|||||||
Directors
|
$ | 164,591 | $ | 180,800 | ||||
Officers
|
32,918 | 54,125 | ||||||
Corporation owned by two Officers, one of which is also a Director
|
363,215 | - | ||||||
Persons related to an Officer and Director
|
83,971 | 42,036 | ||||||
$ | 644,695 | $ | 276,961 |
Incorporated by Reference | ||||||||||
Exhibit
Number
|
|
Exhibit Description
|
|
Filed
Herewith
|
|
Form
|
Exhibit
|
Filing Date
|
||
3.1
|
|
Articles of Incorporation.
|
|
|
10-SB
|
3.1
|
11/15/1999
|
|||
3.2
|
Articles of Amendment to the Articles of Incorporation.
|
8-K
|
3.2
|
5/14/2003
|
||||||
3.3
|
Bylaws.
|
10-SB
|
3.2
|
11/15/1999
|
||||||
10.1
|
Share Purchase Agreement, by and among the Company and Credifinance Capital Corp., dated as June 22, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.2
|
Letter of Intent, by and among the Company and Snoke Distribution Canada Ltd., dated as June 25, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.5
|
Loan Agreement, by and among the Company and Credifinance Capital Corp., dated as of April 15, 2011.
|
8-K
|
11/28/2012
|
|||||||
10.6
|
Loan Termination Agreement, by and among the Company and Credifinance Capital Corp., dated as of November 15, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.7
|
New Loan Agreement, by and among the Company and Credifinance Capital Corp., dated as of November 15, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.8
|
6% Convertible Revolving Credit Note, by and among the Company and Credifinance Capital Corp., dated as of November 15, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.9
|
Gilla Inc. Private Placement Subscription Agreement, dated as of November 15, 2012.
|
8-K
|
11/28/2012
|
|||||||
10.10
|
Exclusive Distribution Agreement, by and among Snoke Distibution Canada Ltd. and Ecoreal GmbH & Co. KG, dated as of November 24, 2011.
|
8-K
|
11/28/2012
|
|||||||
10.11
|
Secured Promissory Note from the Company to Gravitas Financial Inc., dated as of February 13, 2014.
|
8-K
|
2/19/2014
|
|||||||
10.12
|
General Security Agreement, by and between the Company and Gravitas Financial Inc., dated as of February 13, 2014.
|
8-K
|
2/19/2014
|
|||||||
21.1
|
List of Subsidiaries.
|
X
|
||||||||
31.1
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
||||||||
31.2
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
||||||||
32.1
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
X
|
||||||||
32.2
|
Certifications of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
X
|
||||||||
99.1
|
Audit Committee Charter.
|
X
|
||||||||
99.2
|
Code of Ethics.
|
X
|
||||||||
101.INS
|
XBRL Instance Document
|
X
|
||||||||
101.SCH
|
XBRL Taxonomy Extension Schema
|
X
|
||||||||
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase
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X
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101.DEF
|
XBRL Taxonomy Definition Linkbase
|
X
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101.LAB
|
XBRL Taxonomy Extension label Linkbase
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X
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101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase
|
X
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*
|
This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
|
GILLA INC.
|
|||
|
By:
|
/s/ J. Graham Simmonds | |
J. Graham Simmonds
|
|||
Chief Executive Officer
|
|||
By:
|
/s/ Ashish Kapoor | ||
Ashish Kapoor
|
|||
Chief Financial Officer
and
Principal Accounting Officer
|
|||
Name
|
Title
|
Date
|
/s/ Ernest "Ernie" Eves
|
Chairman | April 8, 2014 |
Ernest "Ernie" Eves
|
|
|
/s/ Henry J. Kloepper
|
Director | April 8, 2014 |
Henry J. Kloepper
|
|
|
/s/ J. Graham Simmonds
|
CEO/Director | April 8, 2014 |
J. Graham Simmonds
|
||
/s/ Daniel Yuranyi
|
President/COO/Director | April 8, 2014 |
Daniel Yuranyi
|
||
/s/ Stanley D. Robinson
|
Director | April 8, 2014 |
Stanley D. Robinson
|
Report of Independent Registered Public Accounting Firms
|
F-2 to F-3
|
|
Consolidated Balance Sheets as at December 31, 2013 and 2012
|
F-4
|
|
Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013 and 2012 and the period from November 29, 2011(Date of Inception) to December 31, 2013
|
F-5
|
|
Consolidated Statement of Changes in Shareholders’ Deficiency for the years ended December 31, 2013 and 2012 and the period from November 29, 2011 (Date of Inception) to December 31, 2013
|
F-6
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
and the period from November 29, 2011 (Date of Inception) to December 31, 2013
|
F-7 | |
Notes to Consolidated Financial Statements
|
F-8 to F-21
|
Toronto, Ontario, Canada
April 7, 2014
|
Chartered Accountants
Licensed Public Accountants
|
2300 Yonge Street, Suite 1500, Box 2434
Toronto, Ontario M4P 1E4
Tel: 416 785 5353
Fax: 416 785 5663
|
December 31,
2013
|
December 31,
2012
|
||||||
ASSETS
|
|||||||
Current assets
|
|||||||
Cash and cash equivalents
|
$ | 355,860 | $ | 11,444 | |||
Funds held in trust (note 10)
|
20,000 | - | |||||
Accounts receivable
|
100 | - | |||||
Inventory (note 6)
|
90,914 | - | |||||
Prepaid expenses and vendor deposits
|
15,199 | 799 | |||||
Total current assets
|
482,073 | 12,243 | |||||
Property and equipment (note 7)
|
3,882 | 3,434 | |||||
Website development
|
42,789 | - | |||||
Total long term assets
|
46,671 | 3,434 | |||||
Total assets
|
$ | 528,744 | $ | 15,677 | |||
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
|||||||
Current liabilities
|
|||||||
Accounts payable
|
$ | 125,163 | $ | 74,752 | |||
Accrued liabilities
|
56,838 | 29,478 | |||||
Accrued interest- related party (note 14)
|
78,838 | 1,479 | |||||
Loans from shareholders (note 8)
|
20,615 | 247,836 | |||||
Due to related parties (note 14)
|
767,426 | 239,572 | |||||
Note payable, related party (note 9)
|
225,000 | - | |||||
Total current liabilities
|
1,273,880 | 593,117 | |||||
Long term liabilities
|
|||||||
Note payable, related party (note 9)
|
- | 225,000 | |||||
Convertible debentures to be issued (note 10)
|
45,000 | - | |||||
Convertible debentures (note 10)
|
434,514 | - | |||||
Total long term liabilities
|
479,514 | 225,000 | |||||
Total liabilities
|
1,753,394 | 818,117 | |||||
Going concern (note 3)
|
|||||||
Commitments and contingencies (note 16)
|
|||||||
Related party transactions (note 14)
|
|||||||
Subsequent events (note 19)
|
|||||||
SHAREHOLDERS’ DEFICIENCY
|
|||||||
Common stock (note 11)
|
|||||||
$0.0002 par value, 300,000,000 shares authorized; 67,066,977 and 62,277,766 shares issued and outstanding as of December 31, 2013 and 2012, respectively
|
13,413 | 12,455 | |||||
Additional paid-in capital
|
1,285,637 | 291,218 | |||||
Shares to be issued (note 13)
|
37,500 | - | |||||
Deficit accumulated during the development stage
|
(2,605,961 | ) | (1,103,039 | ) | |||
Accumulated other comprehensive income (loss)
|
44,761 | (3,074 | ) | ||||
Total shareholders’ deficiency
|
(1,224,650 | ) | (802,440 | ) | |||
Total liabilities and shareholders’ deficiency
|
$ | 528,744 | $ | 15,677 |
For the Year
Ended
December 31,
2013
|
For the Year
Ended
December 31,
2012
|
For the Period from November 29, 2011
(Date of Inception) to December 31,
2013
|
||||||||||
Revenue
|
$ | 76,977 | $ | - | $ | 76,977 | ||||||
Cost of goods
|
61,621 | - | 61,621 | |||||||||
Gross profit
|
15,356 | - | 15,356 | |||||||||
Operating expenses
|
||||||||||||
Administrative
|
707,811 | 304,439 | 1,046,584 | |||||||||
Consulting fees-related party
|
644,695 | 276,961 | 921,656 | |||||||||
Depreciation
|
1,518 | 677 | 2,195 | |||||||||
Total operating expenses
|
1,354,024 | 582,077 | 1,970,435 | |||||||||
Loss from operations
|
(1,338,668 | ) | (582,077 | ) | (1,955,079 | ) | ||||||
Other expenses:
|
||||||||||||
Foreign exchange
|
(5,013 | ) | (1,747 | ) | (6,760 | ) | ||||||
Loss on loan receivable written off (note 5)
|
(21,405 | ) | - | (21,405 | ) | |||||||
Loss on acquisition
|
- | (292,226 | ) | (292,226 | ) | |||||||
Loss on deposit written off
|
- | (162,371 | ) | (162,371 | ) | |||||||
Amortization of debt discount
|
(9,514 | ) | - | (9,514 | ) | |||||||
Interest expense, net
|
(128,322 | ) | (25,382 | ) | (153,704 | ) | ||||||
Total other expenses
|
(164,254 | ) | (481,726 | ) | (645,980 | ) | ||||||
Net loss before income taxes
|
(1,502,922 | ) | (1,063,803 | ) | (2,601,059 | ) | ||||||
Income taxes
|
- | - | - | |||||||||
Net loss
|
$ | (1,502,922 | ) | $ | (1,063,803 | ) | $ | (2,601,059 | ) | |||
Loss per weighted average number of shares outstanding (basic and diluted)
|
$ | (0.024 | ) | $ | (0.037 | ) | ||||||
Weighted average number of shares outstanding (basic and diluted)
|
63,319,808 | 28,878,598 | ||||||||||
Comprehensive loss:
|
||||||||||||
Net loss
|
$ | (1,502,922 | ) | $ | (1,063,803 | ) | $ | (2,601,059 | ) | |||
Foreign exchange translation adjustment
|
47,835 | (2,846 | ) | 44,761 | ||||||||
Comprehensive loss
|
$ | (1,455,087 | ) | $ | (1,066,649 | ) | $ | (2,556,298 | ) |
Common Stock
|
Additional
Paid-In
|
Shares to be
|
Deficit Accumulated During the Development
|
Accumulated Other Comprehensive
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Issued
|
Stage
|
Income (Loss)
|
Total
|
||||||||||||||||||||||
Balance, November 29, 2011 (Date of inception)
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||
Issuance of shares for seed capital, November 2011 at $0.0002 per share
|
25,000,000 | 5,000 | - | - | (4,902 | ) | - | 98 | ||||||||||||||||||||
Foreign currency translation loss
|
- | - | - | - | - | (228 | ) | (228 | ) | |||||||||||||||||||
Net loss
|
- | - | - | - | (34,334 | ) | - | (34,334 | ) | |||||||||||||||||||
Balance, December 31, 2011
|
25,000,000 | 5,000 | - | - | (39,236 | ) | (228 | ) | (34,464 | ) | ||||||||||||||||||
Common shares issued for cash at $0.025 per share,
November
2012
|
400,000 | 80 | 9,920 | - | - | - | 10,000 | |||||||||||||||||||||
Common shares issued for cash at $0.03 per share, November 2012
|
4,366,667 | 873 | 130,127 | - | - | - | 131,000 | |||||||||||||||||||||
Effect of reverse acquisition, November 21, 2012
|
29,477,766 | 5,895 | - | - | - | - | 5,895 | |||||||||||||||||||||
Common shares issued for settlement of loans at $0.05 per share, November 2012
|
800,000 | 160 | 39,840 | - | - | - | 40,000 | |||||||||||||||||||||
Issuance of shares and warrants at $0.05 per share as the result of a private placement, November 2012
|
1,900,000 | 380 | 94,731 | - | - | - | 95,111 | |||||||||||||||||||||
Issuance of shares and warrants at $0.05 per share as the result of a private placement, December 2012
|
333,333 | 67 | 16,600 | - | - | - | 16,667 | |||||||||||||||||||||
Foreign currency translation loss
|
- | - | - | - | - | (2,846 | ) | (2,846 | ) | |||||||||||||||||||
Net loss
|
- | - | - | - | (1,063,803 | ) | - | (1,063,803 | ) | |||||||||||||||||||
Balance, December 31, 2012
|
62,277,766 | $ | 12,455 | $ | 291,218 | $ | - | $ | (1,103,039 | ) | $ | (3,074 | ) | $ | (802,440 | ) | ||||||||||||
Common shares issued for cash at $0.035 per share, 200,000 shares were issued on September 25, 2013, 76,485 shares were issued on November 19, 2013
|
276,485 | $ | 55 | $ | 9,622 | $ | - | $ | - | $ | - | $ | 9,677 | |||||||||||||||
Common shares issued for consultant fees at $0.053 on September 25, 2013
|
942,784 | 189 | 49,811 | - | - | - | 50,000 | |||||||||||||||||||||
Common shares issued on settlement of related party loan at fair value, 1,000,000 shares were issued on September 25, 2013, 428,571 shares were issued on November 19, 2013
|
1,428,571 | 286 | 61,143 | - | - | - | 61,429 | |||||||||||||||||||||
Loss on common shares issued on settlement of related party loan
|
- | - | (11,429 | ) | - | - | - | (11,429 | ) | |||||||||||||||||||
Common shares issued on settlement of shareholder loan at fair value, 973,960 shares were issued on September 25, 2013, 417,411 shares were issued on November 19, 2013
|
1,391,371 | 278 | 59,551 | - | - | - | 59,829 | |||||||||||||||||||||
Loss on common shares issued on settlement of shareholder loan
|
- | - | (11,129 | ) | - | - | - | (11,129 | ) | |||||||||||||||||||
Common shares issued for cash at $0.05 per share on October 8, 2013
|
50,000 | 10 | 2,490 | - | - | - | 2,500 | |||||||||||||||||||||
Common shares issued for consultant fees at $0.05 on November 27, 2013
|
400,000 | 80 | 19,920 | - | - | - | 20,000 | |||||||||||||||||||||
Common shares issued for consultant fees at $0.0583 on November 27, 2013
|
300,000 | 60 | 17,440 | - | - | - | 17,500 | |||||||||||||||||||||
Common share subscription for settlement of consulting fees at $0.05
|
- | - | - | 10,000 | - | - | 10,000 | |||||||||||||||||||||
Common share subscription for settlement of consulting fees at $0.142
|
- | - | - | 10,000 | - | - | 10,000 | |||||||||||||||||||||
Common shares subscribed for cash at $0.035
|
- | - | - | 17,500 | - | - | 17,500 | |||||||||||||||||||||
Embedded conversion feature of debenture
|
- | - | 797,000 | 797,000 | ||||||||||||||||||||||||
Foreign currency translation gain
|
- | - | - | - | - | 47,835 | 47,835 | |||||||||||||||||||||
Net loss
|
- | - | - | - | (1,502,922 | ) | - | (1,502,922 | ) | |||||||||||||||||||
Balance, December 31, 2013
|
67,066,977 | 13,413 | 1,285,637 | 37,500 | (2,605,961 | ) | 44,761 | (1,224,650 | ) |
For the Year
Ended
December 31,
2013
|
For the Year
Ended
December 31,
2012
|
For the Period from November 29, 2011
(Date of Inception) to
December 31,
2013
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES :
|
||||||||||||
Net loss
|
$
|
(1,502,922)
|
$
|
(1,063,803)
|
$
|
(2,601,059)
|
||||||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||||||
Depreciation
|
1,518
|
677
|
2,195
|
|||||||||
Loss on loan receivable written-off
|
21,405
|
-
|
21,405
|
|||||||||
Amortization of debt discount
|
9,514
|
-
|
9,514
|
|||||||||
Loss on acquisition
|
-
|
292,226
|
292,226
|
|||||||||
Loss on deposit written-off
|
-
|
162,371
|
162,371
|
|||||||||
Shares issued for services
|
107,500
|
-
|
107,500
|
|||||||||
Changes in operating assets and liabilities
|
||||||||||||
Accounts receivable
|
(100)
|
-
|
(100)
|
|||||||||
Funds held in trust
|
(20,000)
|
(20,000)
|
||||||||||
Prepaid expenses and vendor deposits
|
(14,530)
|
1,364
|
(15,329)
|
|||||||||
Inventory deposit
|
-
|
(162,371)
|
(162,371)
|
|||||||||
Inventory
|
(90,914)
|
-
|
(90,914)
|
|||||||||
Accounts payable
|
54,901
|
71,465
|
126,366
|
|||||||||
Accrued liabilities
|
48,056
|
28,453
|
76,509
|
|||||||||
Related party payables
|
510,352
|
101,498
|
611,850
|
|||||||||
Accrued interest-related party
|
77,518
|
-
|
77,518
|
|||||||||
Net cash used in operating activities
|
(797,702)
|
(568,120)
|
(1,402,319)
|
|||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Factoring loan
|
(19,867)
|
-
|
(19,867)
|
|||||||||
Development of website
|
(42,789)
|
-
|
(42,789)
|
|||||||||
Acquisition of property and equipment
|
(2,010)
|
(4,113)
|
(6,123)
|
|||||||||
Net cash used in investing activities
|
(64,666)
|
(4,113)
|
(68,779)
|
|||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Shareholder loan received (paid)
|
(43,697)
|
5,000
|
(1,091)
|
|||||||||
Net proceeds from loans payable
|
-
|
282,840
|
282,840
|
|||||||||
Net proceeds from related parties
|
241,066
|
95,024
|
336,090
|
|||||||||
Proceeds from promissory note
|
200,000
|
-
|
200,000
|
|||||||||
Repayment of debt
|
-
|
(50,000)
|
(50,000)
|
|||||||||
Proceeds from sale of convertible debentures
|
766,000
|
-
|
766,000
|
|||||||||
Proceeds from share subscriptions
|
17,500
|
-
|
17,500
|
|||||||||
Proceeds from sale of common stock
|
12,177
|
252,778
|
264,955
|
|||||||||
Net cash provided by financing activities
|
1,193,046
|
585,642
|
1,816,294
|
|||||||||
Effect of exchange rate changes on cash
|
13,738
|
(2,846)
|
10,664
|
|||||||||
Net increase in cash
|
$
|
344,416
|
$
|
10,563
|
$
|
355,860
|
||||||
Cash at beginning of year
|
11,444
|
881
|
-
|
|||||||||
Cash at end of year
|
$
|
355,860
|
$
|
11,444
|
$
|
355,860
|
||||||
Supplemental Schedule of Cash Flow Information:
|
||||||||||||
Cash paid for interest
|
$
|
24,415
|
$
|
-
|
$
|
24,415
|
||||||
Cash paid for income taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||
Non cash financing activities:
|
||||||||||||
Common stock issued in settlement of related party and shareholder loans
|
$
|
98,700
|
$
|
40,000
|
$
|
138,700
|
||||||
Common stock issued for reverse acquisition
|
$
|
-
|
$
|
5,895
|
$
|
5,895
|
||||||
Common stock issued for payment of consulting fees
|
$
|
107,500
|
$
|
-
|
$
|
107,500
|
||||||
Debentures issued for settlement of consulting fees to related party
|
$
|
50,000
|
$
|
-
|
$
|
50,000
|
||||||
Debentures issued for settlement of related party and shareholder loans
|
$
|
451,000
|
$
|
-
|
$
|
451,000
|
Assets acquired:
|
$
|
4
|
||
Liabilities assumed:
|
(286,360
|
)
|
||
Common stock retained:
|
(5,895
|
)
|
||
Foreign Exchange Difference
|
25
|
|||
Net loss:
|
$
|
(292,226
|
)
|
●
Level 1
|
-
|
Unadjusted quoted prices in active markets for identical assets or liabilities;
|
●
Level 2
|
-
|
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
|
●
Level 3
|
-
|
Inputs that are not based on observable market data.
|
● Furniture and equipment
|
3 years |
● Computer hardware
|
3 years
|
●
|
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period.
|
●
|
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
|
December 31,
2013
|
December 31,
2012
|
|||||||
E-cigarettes and accessories
|
$ | 74,419 | $ | - | ||||
Packaging
|
16,495 | - | ||||||
$ | 90,914 | $ | - |
December 31,
2013
|
December 31,
2012
|
|||||||||||||||
Cost
|
Accumulated Depreciation
|
Net
|
Net
|
|||||||||||||
Furniture and equipment
|
$
|
2,552
|
$
|
1,113
|
$
|
1,439
|
$
|
1,710
|
||||||||
Computer hardware
|
3,492
|
1,049
|
2,443
|
1,724
|
||||||||||||
$
|
6,044
|
$
|
2,162
|
$
|
3,882
|
$
|
3,434
|
December 31,
2013
|
December 31,
2012
|
|||||||
Non-interest bearing, unsecured, no specific terms of repayment
|
$ | 6,512 | $ | 16,667 | ||||
Bears interest of 1% per month on a cumulative basis, secured by the assets of the Company, no specific terms of repayment
|
14,103 | 231,169 | ||||||
$ | 20,615 | $ | 247,836 |
●
|
Issued 276,485 common shares valued at $0.035 for cash proceeds of $9,677
|
●
|
Issued 942,784 common shares at an average price of $0.053 as settlement of $50,000 in consulting fees owing to an unrelated party
|
●
|
Issued 1,428,571 common shares at a fair value of $0.043 per share as settlement of a related party loan in the amount of $50,000. The amount allocated to Shareholders’ Deficiency, based on the fair value, amounted to $61,429. The balance of $11,429 represents a loss on the settlement of the related party debt and was also allocated to equity
|
●
|
Issued 1,391,371 common shares at a fair value of $0.043 per share as settlement of a loan from shareholder in the amount of $48,700. The amount allocated to Shareholders’ Deficiency, based on the fair value, amounted to $59,829. The balance of $11,129 represents a loss on the settlement of the shareholder loan and was also allocated to equity.
|
●
|
Issued 50,000 common shares valued at $0.05 for cash proceeds of $2,500
|
●
|
Issued 400,000 common shares valued at $0.05 as settlement of $20,000 in consulting fees owing to unrelated parties.
|
●
|
Issued 300,000 common shares valued at $0.0583 as settlement of $17,500 in consulting fees owing to unrelated parties
|
●
|
Issued 29,766,667 shares of its common stock in exchange for 29,477,766 shares of Snoke Distribution in connection with the reverse merger transaction. See discussion
in Note 2 Reverse Merger Transaction and Accounting.
|
●
|
Issued 400,000 shares of common stock valued at $0.025 for cash proceeds of $10,000.
|
●
|
Closed a private placement of 4,366,667 shares of common stock for $131,000 at a price of $0.03 per common share.
|
●
|
Closed a private placement of 2,700,000 shares of common stock for $135,000 at a price of $0.05 per common share with a half warrant entitling the holder to acquire one common share of the Company at a price of $0.10 per share for a period of 6 months from the Merger date. The $135,000 consisted of $95,111 received in cash and the settlement of $40,000 in loans payable.
|
●
|
Closed a private placement of 333,333 shares of common stock for $16,667 at a price of $0.05 per common share with a half warrant entitling the holder to acquire one common share of the Company at a price of $0.10 per share for a period of 6 months from the date of issuance.
|
December 31, 2013
|
December 31, 2012
|
|||||||||||||||
No. of Warrants
|
WAEP
|
No. of Warrants
|
WAEP
|
|||||||||||||
Beginning of year
|
1,516,667
|
$
|
0.10
|
-
|
$
|
-
|
||||||||||
Issued
|
-
|
-
|
1,516,667
|
0.10
|
||||||||||||
Expired
|
(1,516,667)
|
(0.10)
|
-
|
-
|
||||||||||||
End of year
|
-
|
$
|
-
|
1,516,667
|
$
|
0.10
|
Risk-free interest rate
|
0.09 | % | ||
Expected life
|
6 months
|
|||
Estimated volatility in the market price of the common shares
|
461 | % | ||
Dividend yield
|
Nil
|
●
|
The Company settled $10,000 in consulting fees payable to an unrelated party with 200,000 common shares valued at $0.05, the shares were issued on January 8, 2014;
|
●
|
The Company received $17,500 in cash for the purchase of 500,000 common shares valued at $0.035, the shares were issued on January 8, 2014; and
|
●
|
The Company settled $10,000 in consulting fees payable to an unrelated party with 70,423 common shares valued at $0.142, the shares were issued on March 28, 2014.
|
(a)
|
The Company’s current and former officers and shareholders have advanced funds on an unsecured, non-interest bearing basis to the Company for travel related and working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances.
|
December 31,
2013
|
December 31,
2012
|
|||||||
Advances by Officers of the Company, two of which are also Directors
|
$ | 226,430 | $ | 126,317 | ||||
Advances by a corporation owned by two Officers, one of which is also a Director
|
255,215 | - | ||||||
Advances by persons related to an Officer and Director of the Company
|
55,907 | 18,231 | ||||||
Advances by an Officer and Director of the Company, bears interest at 1.5% per month
|
214,265 | 95,024 | ||||||
Advances by a corporation related by virtue of common Officers and Directors
|
15,609 | - | ||||||
$ | 767,426 | $ | 239,572 |
(b)
|
Interest accrued to related parties during the years ended December 31, 2013 and 2012 is as follows:
|
December 31,
2013
|
December 31,
2012
|
|||||||
Interest accrued on advances by an Officer and Director of the Company
|
$ | 57,461 | $ | - | ||||
Interest accrued on related party Secured Note (note 9)
|
6,000 | - | ||||||
Interest accrued on related party convertible revolving credit note (note 9)
|
15,377 | 1,479 | ||||||
$ | 78,838 | $ | 1,479 |
(c)
|
Transactions with related parties during the year ended December 31, 2013 and 2012 were as follows:
|
December 31,
2013
|
December 31,
2012
|
|||||||
Directors
|
$ | 164,591 | $ | 180,800 | ||||
Officers
|
32,918 | 54,125 | ||||||
Corporation owned by two Officers, one of which is also a Director
|
363,215 | - | ||||||
Persons related to an Officer and Director
|
83,971 | 42,036 | ||||||
$ | 644,695 | $ | 276,961 |
December 31,
2013
|
December 31,
2012
|
|||||||
Expected income tax (recovery) at the statutory rate of 35% (2012: 35%)
|
$ | (526,023 | ) | $ | (372,331 | ) | ||
Decrease in taxes resulting from:
|
||||||||
Non-deductible expenses
|
8,837 | 9,251 | ||||||
Valuation allowances
|
517,186 | 363,080 | ||||||
Provision for income taxes
|
$ | - | $ | - |
December 31,
2013
|
December 31,
2012
|
|||||||
Deferred income tax assets
|
||||||||
Net operating loss carry forwards
|
$ | 880,266 | $ | 363,080 | ||||
Valuation allowance for deferred income tax assets
|
(880,266 | ) | (363,080 | ) | ||||
Deferred income taxes
|
$ | - | $ | - |
16.
|
COMMITMENTS AND CONTINGENCIES
|
December 31, 2014
|
$
|
3,995
|
||
$
|
3,955
|
December 31, 2014
|
$
|
13,886
|
||
$
|
13,886
|
December 31,
2013
|
December 31,
2012
|
|||||||
Canada
|
$ | 3,960 | $ | 4,386 | ||||
United States
|
524,784 | 11,291 | ||||||
$ | 528,744 | $ | 15,677 |
Subsidiary Name
|
Jurisdictions in which Incorporated
|
Percentage of Ownership
|
||||
Gilla Enterprises Inc.
|
Canada (Ontario)
|
100 | % | |||
Snoke Distribution Canada Ltd.
|
Canada (Ontario)
|
100 | % | |||
Snoke Distribution USA, LLC
(1)
|
USA (Florida)
|
100 | % | |||
Gilla Operations, LLC
|
USA (Florida)
|
100 | % | |||
Charlie’s Club, Inc.
|
USA (Florida)
|
100 | % |
1)
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Gilla Inc.;
|
|||
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|||
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|||
4)
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|||
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|||
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|||
5)
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|||||
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|||||
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|||||
Gilla Inc.
|
||||||
Date: April 8, 2014
|
By:
|
/s/ J. Graham Simmonds
|
||||
Name: J. Graham Simmonds
|
||||||
Title: Chief Executive Officer
|
1)
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2013 of Gilla Inc.;
|
|||
2)
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|||
3)
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|||
4)
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|||
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|||
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|||
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|||
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
|||
5)
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
|||||
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|||||
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|||||
Gilla Inc.
|
||||||
Date: April 8, 2014
|
By:
|
/s/ Ashish Kapoor
|
||||
Name: Ashish Kapoor
|
||||||
Title: Chief Financial Officer
|
Gilla Inc.
|
||
Date: April 8, 2014
|
By:
|
/s/ J. Graham Simmonds
|
Name: J. Graham Simmonds
|
||
Title: Chief Executive Officer
|
Gilla Inc.
|
||
Date: April 8, 2014
|
By:
|
/s/ Ashish Kapoor
|
Name: Ashish Kapoor
|
||
Title: Chief Financial Officer
|
(1)
|
Communications - The chairperson and others on the committee shall, to the extent appropriate, have contact throughout the year with senior management, other committee chairpersons, and other key committee advisors, external and internal auditors, etc., as applicable, to strengthen the committee's knowledge of relevant current and prospective business issues.
|
(2)
|
Committee Education/Orientation - The committee, with management, shall develop and participate in a process for review of important financial and operating topics that present potential significant risk to the Company. Additionally, individual committee members are encouraged to participate in relevant and appropriate self-study education to assure understanding of the business and environment in which the Company operates.
|
(3)
|
Annual Plan - The committee, with input from management and other key committee advisors, shall develop an annual plan responsive to the "primary committee responsibilities" detailed herein. The annual plan shall be reviewed and approved by the full board.
|
(4)
|
Meeting Agenda - Committee meeting agendas shall be the responsibility of the committee chairperson, with input from committee members. It is expected that the chairperson would also ask for management and key committee advisors, and perhaps others, to participate in this process.
|
(5)
|
Committee Expectations and Information Needs - The committee shall communicate committee expectations and the nature, timing, and extent of committee information needs to management, internal audit, and external parties, including external auditors. Written materials. including key performance indicators and measures related to key business and financial risks, shall be received from management, auditors, and others at least one week in advance of meeting dates. Meeting conduct will assume board members have reviewed written materials in sufficient depth to participate in committee/board dialogue.
|
(6)
|
External Resources - The committee shall be authorized to access internal and external resources, as the committee requires, to carry out its responsibilities.
|
(7)
|
Committee Meeting Attendees - The committee shall request members of management, counsel, internal audit, and external auditors, as applicable, to participate in committee meetings, as necessary, to carry out the committee responsibilities. Periodically and at least annually, the committee shall meet in private session with only the committee members. It shall be understood that either internal or external auditors, or counsel, may, at any time, request a meeting with the audit committee or committee chairperson with or without management attendance. In any case, the committee shall meet in executive session separately with internal and external auditors, at least annually.
|
(8)
|
Reporting to the Board of Directors - The committee, through the committee chairperson, shall report periodically, as deemed necessary, but at least semi-annually, to the full board. In addition, summarized minutes from committee meetings, separately identifying monitoring activities from approvals, shall be available to each board member at least one week prior to the subsequent board of directors meeting.
|
(1)
|
The external auditors, in their capacity as independent public accountants, shall be responsible to the board of directors and the audit committee as representatives of the shareholders.
|
(2)
|
As the external auditors review financial reports, they will be reporting to the audit committee. They shall report all relevant issues to the committee responsive to agreed-on committee expectations. In executing its oversight role, the board or committee shall review the work of external auditors.
|
(3)
|
The committee shall annually review the performance (effectiveness, objectivity, and independence) of the external and internal auditors. The committee shall ensure receipt of a formal written statement from the external auditors consistent with standards set by the Independent Standards Board and the Securities and Exchange Commission. Additionally, the committee shall discuss with the auditor relationships or services that may affect auditor objectivity or independence. If the committee is not satisfied with the auditors' assurances of independence, it shall take or recommend to the full board appropriate action to ensure the independence of the external auditor.
|
(4)
|
The internal audit function shall be responsible to the board of directors through the committee.
|
(5)
|
If either the internal or the external auditors identify significant issues relative to the overall board responsibility that have been communicated to management but, in their judgment, have not been adequately addressed, they shall communicate these issues to the committee chairperson.
|
(6)
|
Changes in the directors of internal audit or corporate compliance shall be subject to committee approval.
|
(1)
|
Risk Management - The Company's business risk management process, including the adequacy of the Company's overall control environment and controls in selected areas representing significant financial and business risk.
|
(2)
|
Annual Reports and Other Major Regulatory Filings - All major financial reports in advance of filings or distribution.
|
(3)
|
Internal Controls and Regulatory Compliance - The Company's system of internal controls for detecting accounting and reporting financial errors, fraud and defalcations, legal violations, and noncompliance with the corporate code of conduct.
|
(4)
|
Internal Audit Responsibilities - The annual audit plan and the process used to develop the plan. Status of activities, significant findings, recommendations, and management's response.
|
(5)
|
Regulatory Examinations - SEC inquiries and the results of examinations by other regulatory authorities in terms of important findings, recommendations, and management's response.
|
(6)
|
External Audit Responsibilities - Auditor independence and the overall scope and focus of the annual/interim audit, including the scope and level of involvement with unaudited quarterly or other interim-period information.
|
(7)
|
Financial Reporting and Controls - Key financial statement issues and risks, their impact or potential effect on reported financial information, the processes used by management to address such matters, related auditor views, and the basis for audit conclusions. Important conclusions on interim and/or year-end audit work in advance of the public release of financials.
|
(8)
|
Auditor Recommendations - Important internal and external auditor recommendations on financial reporting, controls, other matters, and management's response. The views of management and auditors on the overall quality of annual and interim financial reporting.
|
(1)
|
The Company’s code of ethical conduct.
|
(2)
|
Changes in important accounting principles and the application thereof in both interim in and annual financial reports.
|
(3)
|
Significant conflicts of interest and related-party transactions.
|
(4)
|
External auditor performance and changes in external audit firm (subject to ratification by the full board).
|
(5)
|
Internal auditor performance and changes in internal audit leadership and/or key financial management.
|
(6)
|
Procedures for whistle blowers.
|
(7)
|
Pre-approve allowable services to be provided by the auditor.
|
(8)
|
Retention of complaints.
|